This blog gives investors more financial information for very smart investing!

Tuesday, September 18, 2018

Higher markets after new tariffs on Chinese goods

Dow shot up 184, advancers over decliners only 5-4 & NAZ went up 60. The MLP index was fractionally higher in the 278s & the REIT index added 1+ to 360. Junk bond funds fluctuated & Treasuries were sold, taking the yield on the 10 year Treasury up 5 basis points to 3.05%. Oil rose almost 1 to the high 69s & gold gave back 3 to 1202.

Most fund managers believe the US is the best
place for corp profits, according to a Bank of America Merrill
Lynch Global Research report. The bank's
Sep Fund Manager Survey found that investors are bearish on global
growth & the US continues to be the most favorable region in which
to invest. When asked about their regional
expectations for corp profits, a net 69% of those surveyed
found the US to be the most favorable region, a 17-year high. 24% of fund managers surveyed
expect global growth to slow in the next year, compared to the 7% in Aug. “Investors
are holding on to more cash, telling us they are bearish growth and
bullish US decoupling,” Michael Hartnett, the bank's chief investment
strategist, wrote in the report. “Fund managers are signaling that they
are starting to price in a hawkish Fed.” Investors increased the amount of money they
allocated to US equities by 2 percentage points to 21%
overweight. Investors are the most overweight since Jan 2015 & the
US is the most favored equity region for the 2nd month running. A trade war remains the risk most commonly cited, followed by a China slowdown & quantitative tightening.

The Trump administration will begin taxing $200B in Chinese goods & the tariffs will start at 10% & rise to 25% in 2019. The
target list is huge, ranging from rattan mats to burglar alarms to
bicycles. But the administration struck some items from the originally
planned $200B tariff list, including bicycle helmets & other
child safety products. And, in a victory for Apple (AAPL), a Dow & NAZ stock, smart watches & some other electronics products won't be subject to the new tariffs,
either. The administration & Beijing have
already imposed import taxes on $50B worth of each other's
products. Beijing's target list of US goods to penalize was heavy on
agriculture. That's hardly a coincidence. Its
tariffs are meant to deliver pain to American farmers, who
overwhelmingly backed Trump in the 2016 election & whose interests are
represented by powerful lobbyists & members of Congress. Exports to
China account for about 60% of the overseas sales of American
soybean farmers, who stand to lose sales as a result of China's tariffs. The Trump administration has accused China of
using predatory tactics in a lawless drive to overtake America's
technological supremacy. US officials point to Beijing's long-range
development plan, "Made in China 2025," which calls for creating
powerful Chinese entities in such areas as information technology,
robotics, aerospace equipment, electric vehicles & biopharmaceuticals. Foreign
business groups argue that "Made in China 2025" is unfairly forcing
them to the sidelines in those industries. The Office of the US Trade
Representative concluded after an investigation that China's tactics
range from requiring US & other foreign companies to hand over
technology in return for access to the vast Chinese market to outright
cyber-theft. The US also asserts that Beijing uses state money to buy
American technology at prices unaffordable for private companies. The
Trump administration said the new tariffs on an additional $200B
in Chinese imports was a response to Beijing's failure so far to end
those tactics.

Top White House Economic Advisor Larry Kudlow said while the
administration needs to be tougher on spending, growth from recent tax
cuts should fix the issue. "If you grow rapidly you're going to
have lesser deficits. Growth solves a lot of problems," Kudlow said at
the Economic Club of NY. "The gap is principally
spending too much." Thanks to an uptick in
GDP, after tax cuts, Kudlow said the US has
"just about paid for two thirds of the total tax cuts." The tax overhaul passed in
Dec permanently cut the corp tax rate to 21% &
temporarily reduced taxes on most individuals. The plan sparked concerns
in both political parties about growing budget deficits. "People are quick to blame deficits on tax cuts but I don't buy that," he added. "Tax cuts promote growth and wages." GDP growth in Q2 increased at a 4.2% annualized rate,
according to the Commerce Dept's estimate of GDP growth. Still, Kudlow said he
would still prefer if US deficits were lower than the current 4-5% of GDP for the next 2 years but "it's not a
catastrophe." He called it one of the "rare moments" he publicly agrees
with Congressional Budget Office. "We spent too much, I absolutely agree," Kudlow said. "Down the road of course we'd like to slim that down as much as possible." Part of the Rep
plan to curb spending is tackling entitlements. Kudlow said the
administration was "still chipping away" to reduce the "burdens and
inefficiencies of entitlements," including certain pillars of Obamacare.

Oil futures rose more than 1% on
signs that OPEC would not be prepared to raise output to address
shrinking supplies from Iran & as Saudi Arabia signaled an informal
target near current levels. Brent crude futures were up $1.01 a barrel (1.3%) to $79.06 after rising as high as $79.73 earlier in the session. West Texas Intermediate (WTI) crude was up 94¢ (1.4%) at $69.85 per barrel, off a session high of $70.42. Ministers from OPEC & non-OPEC
producers meet on Sun to discuss compliance with output policies.
OPEC sources have said no immediate action was planned &
producers would discuss how to share a previously agreed output
increase. It was reported that the kingdom was currently
comfortable with prices above $80 per barrel, at least for the
short-term. While Saudi Arabia had no desire to push prices higher than $80, it
may no longer be possible to avoid it. US sanctions affecting Iran's
petroleum sector are due to come into force from Nov 4. Russian Energy Minister
Alexander Novak said an oil price of $70-80 was temporary &
sanctions-driven, adding that the long-term price would stand around $50
a barrel. Energy Secretary
Rick Perry said last week in Moscow that he did not foresee any price
spikes once sanctions came into effect & was positive about Saudi
output. Oil futures also drew support from geopolitical risk today. Russia's Defense Ministry
said a Russian military plane was shot down by Syrian anti-aircraft
systems, but accused Israel of indirectly causing the incident, saying
Israeli jets nearby had put the Russian plane in the path of danger. Russia has told Israel it will take all necessary measures to protect
its military personnel in Syria, the foreign ministry in Moscow said.

After the increases in tariffs, traders decided they liked what they heard. The popular averages had a good day, but market breadth was not impressive. The bulls are happy to see stocks taking the news so well with the Dow only about 370 under its record high made in Jan.